PG&E Corporation

Opinion

EDWARD J. EMMONS, CLERK 13 □□ \o. U.S. BANKRUPTCY COURT □□ NORTHERN DISTRICT OF CALIFORNIA ay a yy □□□ 1 . . Signed and Filed: October 22, 2020 □□□□ OL 2 Vani J 2 4 Vin An 0 5 DENNIS MONTALI U.S. Bankruptcy Judge 6 7 UNITED STATES BANKRUPTCY COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 In re: ) Bankruptcy Case 10 ) No. 19-30088-DM PG&E CORPORATION, ) 11 ) Chapter 11 12 - and - ) ) Jointly Administered 13 |}PACIFIC GAS AND ELECTRIC COMPANY, }) ) 14 Reorganized Debtors. ) Date: October 13, 2020 1s Time: 10:30 a.m. Affects PG&E Corporation ) Hearing held via Zoom 16 affects Pacific Gas and ) 17 Electric Company Affects both Debtors ) 18 ) * All papers shall be filed in ) 19 |lthe Lead Case, No. 19-30088 (DM)? 2Q □□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□ 21 MEMORANDUM DECISION DISALLOWING ADMINISTRATIVE EXPENSE CLAIMS 22 I. INTRODUCTION. 23 A group of claimants (“the RSA Noteholders”) have asserted 24 || saministrative expense claims arising from the Reorganized 25 |lDebtors’ purported breach of a post-petition restructuring 26 agreement, estimated to be in the aggregate of $250,000,000, 27 against the Reorganized Debtors. For the reasons explained 28 -1-

1 below, the court will sustain the objections of the Reorganized 2 Debtors and disallow the claims. 3 II. PARTIES. 4 Elliott Management Corporation (“Elliott”) on its own 5 behalf and on behalf of certain funds and accounts managed, 6 advised, or sub-advised by it, filed the Motion for (i) 7 Allowance and Payment of an Administrative Expense Claim and 8 (ii) to the Extent Necessary, Reconsideration and Relief from 9 the Confirmation Order Pursuant to Federal Rule of Civil 10 Procedure 60(b) on July 24, 2020 (Dkt. 8536). This motion and 11 request for allowance and payment of an administrative expense 12 is based on a purported breach by Debtors of a post-petition 13 restructuring agreement that they entered with certain 14 noteholders (the “Noteholder RSA”). Elliott was joined by 15 several similarly situated claimants who filed their Joinder in 16 the Pending Elliott Motion and Request for Allowance and Payment 17 of Administrative Expense Claim on August 4, 2020 (Dkt. 8663).1 18 Pacific Investment Management Company LLC (“PIMCO”) joined them 19 and Elliott when it filed its Joinder of Pacific Investment 20 Management Company LLC in the Pending Elliott Motion and Request 21 for Allowance and Payment of Administrative Expense Claim on 22 August 7, 2020 (Dkt. 8704). 23 24 25 1 Joining Elliott at that time were: Canyon Capital Advisors LLC, Citadel Advisors LLC, Davidson Kempner Capital Management LP, Farallon Capital 26 Management, L.L.C., Sculptor Master Fund, Ltd., Sculptor Enhanced Master Fund, Ltd., Sculptor Credit Opportunities Master Fund, Ltd., Sculptor GC 27 Opportunities Master Fund, Ltd., Sculptor SC II, LP, and Värde Partners, Inc., on behalf of themselves, and/or certain funds and accounts managed, 28 advised, or sub-advised by them. -2- 1 PG&E Corporation and Pacific Gas and Electric Company 2 (“Reorganized Debtors”) filed Reorganized Debtors’ Initial 3 Opposition to Elliott Management Corporation’s Motion for 4 Allowance and Payment of Administrative Expense Claim and 5 Reconsideration of Confirmation Order and Related Joinders as an 6 initial opposition to Elliott’s Motion on August 26, 2020 (Dkt. 7 8864). Elliott and the others filed their respective responses: 8 Elliott Management Corporation’s Response to Reorganized 9 Debtors’ Initial Opposition to Motion for (i) Allowance and 10 Payment of an Administrative Expense Claim and (ii) to the 11 Extent Necessary, Reconsideration and Relief from the 12 Confirmation Order Pursuant to Federal Rule of Civil Procedure 13 60(b) (Dkt. 9032) and Additional RSA Noteholders’ Response to 14 Reorganized Debtors’ Initial Opposition to Elliott Motion for 15 Allowance and Payment of Administrative Expense Claim and 16 Reconsideration of Confirmation Order and Related Joinders (Dkt. 17 9034) on September 14. Reorganized Debtors filed their Reply in 18 Support of Initial Opposition to Elliott Management 19 Corporation’s Motion for Allowance and Payment of Administrative 20 Expense Claim and Reconsideration of Confirmation Order and 21 Related Joinders on September 25, 2020 (Dkt. 9143). 22 The motion came on for hearing on October 13, 2020. 23 Appearances were noted on the record. 24 III. CRITICAL DATES, PLAN PROVISIONS AND PARAGRAPHS OF THE 25 OCP. 26 On February 5, 2020, the court approved the Noteholder RSA 27 following extensive negotiations among the Reorganized Debtors 28 -3- 1 (prior to confirmation of their Plan), certain Shareholders 2 Proponents, and certain holders of funded debt claims. 3 The court entered its Order Confirming Debtors’ and 4 Shareholder Proponents’ Joint Chapter 11 Plan of Reorganization 5 Dated June 19, 2020 (the “OCP”) on June 20, 2020, confirming the 6 Debtors’ and Shareholders Proponents’ Joint Chapter 11 Plan of 7 Reorganization Dated June 19, 2020 (the “Plan”) (Dkt. 8053). The 8 Plan became effective as of July 1, 2020 (the “Effective Date”). 9 The critical and determinative provisions relevant to this 10 decision are as follows: 11 Plan, Article 2.1 Administrative Expense Claims 12 Plan, Article 10.8 Exculpation 13 Plan, Article 10.9(b) Releases by Holders of Claims 14 and Interest 15 OCP, ¶ 54 Exculpation 16 OCP, ¶ 56 Releases by Holders of Claims and Interest. 17 The Noteholder RSA contains a provision (“the best efforts 18 provision”} that the RSA Noteholders contend the Reorganized 19 Debtors breached, thus establishing a basis for their 20 administrative expense claims. That is found in Section 21 3(a)(iv) of the Noteholder RSA and obligates the debtors (prior 22 to confirmation and up to the Effective Date), and their 23 attorneys, advisors, and agents to: 24 use their best efforts, which shall not require 25 the Debtors to pay any consideration, breach any obligations, or otherwise violate the terms of 26 any Backstop Commitment Letter, to cause various 27 Backstop Parties to transfer (whether by assignment, participation, or otherwise) to 28 -4- 1 C Ao Hn Cs e Cn ot mi mn ig t mN eo nt te h Lo el td te er rs at nh da t a nw ye r Ce o np sa er nt ti ie ns g to the Noteholders that were offered the opportunity to 2 participate in any subsequent commitment in 3 connection with the Alternative Plan, their rights (subject to Section 7 hereof) (including 4 the right to receive fees thereunder) and obligations under applicable Backstop Commitment 5 Letters relating to up to $2 billion of 6 commitments. 7 IV. PROCEDURAL STATUS. 8 On August 11, 2020, the court entered an Order Regarding 9 Scheduling with Respect to Elliott Management Corporation Motion 10 for Allowance and Payment of Administrative Expense Claim and 11 Related Joinders (Dkt. 8746). There the court established a 12 procedure to determine whether the Reorganized Debtors could 13 prevail on the face of Elliott’s motion, as joined by the 14 others, as a matter of law, avoiding the need for discovery or 15 other unnecessary delay. The Reorganized Debtors’ challenge to 16 the administrative expense claims of the RSA Noteholders is a 17 contested matter under Fed. R. Bankr. P. 9014; that rule in turn 18 incorporates relevant provisions of the Federal Rules of Civil 19 Procedure via the Federal Rules of Bankruptcy Procedure. 20 Accordingly, the court treats the matters that were briefed 21 and argued on October 13, 2020 as the functional equivalent of a 22 motion for a judgment on the pleadings, taking all facts as 23 uncontested for these purposes. It determines as a matter of 24 law that the Reorganized Debtors are correct and their 25 objections should be sustained. 26 // 27 // 28 -5- 1 V. DISCUSSION. 2 A. Administrative Expense Claims – Allowed or Disallowed 3 The RSA Noteholders make much of a statement in Section 2.1 4 of the Plan that no administrative expense claims shall be 5 discharged and contend that their claim for breach of the 6 Noteholder RSA constitutes an administrative expense claim and 7 that Debtors’ proposed treatment of the claim conflicts with 8 Articles 10.8 and 10.9 of the Plan and paragraphs 54 and 56 of 9 the OCP. 10 The court disagrees. Article 1.4 preserves expenses of 11 administration that are allowable; the corollary is that 12 administrative expense claims that are not allowable will be 13 discharged and, of course, will not be paid. As stated at the 14 outset, the court is disallowing the administrative expense 15 claims of the RSA Noteholders. The concern about discharge is 16 moot and no further action by the court is necessary as to this 17 issue. 18 B. Negotiation and Pursuit of the Noteholder RSA 19 In the Memorandum of Decision – Confirmation of Debtors’ 20 and Shareholder Proponents’ Joint Chapter 11 Plan of 21 Reorganization (Dkt. 8001), the court referred to the recent 22 Ninth Circuit Blixseth decision2 in support of the proposition 23 that exculpation provisions permit protection of various parties 24 “who participated in the approval process”, pointing out that 25 the exculpation provisions of the Plan cover a multitude of 26

27 2 Blixseth v. Credit Suisse (In re Blixseth), 961 F.3d 1074 (9th Cir. 28 2020). -6- 1 players, a number of documents and a number of events and 2 activities, consistent with the complexity and difficulties of 3 these cases. Blixseth itself cited In re PWS Holding Corp., 228 4 F.3d 224 (3d Cir. 2000), for the notion that partial exculpation 5 is the norm for acts committed during the process of developing 6 and confirming a chapter 11 plan. Such provisions do not 7 conflict with 11 U.S.C. § 524(e). 8 For this reason, it is appropriate and consistent with 9 Blixseth, to extend exculpation to parties who participated, 10 negotiated and even “pursued” the Noteholder RSA and countless 11 other documents. But once the negotiation was completed, the 12 pursuit was over. Article 10.8 provides the safe harbor for all 13 who accomplished that end, for all who were “involved in the 14 process of developing and confirming [the Plan]”. When the 15 Noteholder RSA was approved by the court on February 5, 2020 16 (Dkt. 5637) there was nothing further to negotiate or pursue 17 concerning that document. To use the vernacular, it was a “done 18 deal”. 19 The RSA Noteholders are correct that they had the right to 20 contend at a later date that Reorganized Debtors, prior to or 21 concurrent with confirmation of the Plan, breached the best 22 efforts provision, subject to whatever defenses the Reorganized 23 Debtors may assert. Thus, the court concludes that the 24 exculpation provisions of Article 10.8, and the parallel 25 provisions of paragraph 54 of the OCP provide no relief for the 26 Reorganized Debtors. 27 // 28 -7- 1 C. Releases by Holders of Claims and Interest 2 In contrast to the narrow exculpation provisions dealing 3 with “negotiation and pursuit” of various documents and 4 including a fairly typical carveout for actual fraud or willful 5 misconduct, the release provisions and the parallel paragraph 56 6 of the OCP are quite a different story. There, there is no 7 carveout for actual fraud or willful misconduct nor any 8 limitation on the extent and breadth of what has been released. 9 The provisions are lengthy, somewhat redundant and very 10 lawyerlike. Below the court highlights certain provisions to 11 emphasize how far reaching they are and how readily they 12 encompass any alleged breach of the best efforts provision:

13 “Released Parties [including the Reorganized Debtors] are deemed forever released and 14 discharged . . . from any and all claims, interests, 15 obligations, suits, judgments, damages, demands, debts, rights, Causes of Action, losses, remedies, 16 and liabilities whatsoever . . . based on or relating to, or in any manner arising from, in whole 17 or in part, the Debtors’, the Fires’, the Chapter 11 18 Cases . . . the subject matter of, or the transactions or events giving rise to any 19 Claim . . . the business or contractual arrangements between any Debtor and any Released Parties . . . 20 the Plan Funding, the Restructuring . . . before or 21 during the Chapter 11 Cases . . . the Backstop Commitment Letters . . . the Noteholder RSA . . . 22 the negotiation, formulation, or preparation of . . . the Plan and related agreements . . . , and 23 “other documents (including Plan documents) . . . , 24 the Noteholder RSA . . . .” Based upon these broad provisions the court determines that 25 the RSA Noteholders are bound by the releases they agreed to, 26 thus relieving the Reorganized Debtors of any exposure to claims 27 28 -8- 1 by the RSA Noteholders for breach of the Noteholder RSA and in 2 particular the best efforts provisions. 3 D. Post Effective Date Claims 4 The RSA Noteholders point to the preamble of Article 5 10.9(b) to maintain that somehow their right to assert the 6 administrative expense claims survives confirmation and the 7 Effective Date, and thus can be asserted, subject to substantive 8 defenses, at this juncture. The court rejects that argument. 9 Article 10.9(b) begins:

10 “Releases by Holders of Claims and Interests. As of and subject to the occurrence of the Effective 11 Date, except for the rights that remain in effect 12 from and after the Effective Date to enforce the Plan . . . .” 13 14 The RSA Noteholders argue that the Reorganized Debtors 15 breached the best efforts provision by not even attempting to 16 have any of the Backstop Commitment parties share with them any 17 of the fees and other entitlements up to $2 billion of 18 commitments as provided in the portion of the Noteholder RSA 19 quoted above. The best efforts provision was a continuing 20 obligation for the duration of the RSA Support Period, defined 21 as running from the date of execution of the Noteholder RSA 22 through the Effective Date of the Plan. The provisions of 23 Section 3(a)(4) ended on that Effective Date and thus do not 24 come within the phrase “rights that remain in effect from and 25 after the Effective Date.” The RSA Noteholders had no right to 26 complain about the Reorganized Debtors’ lack of best efforts 27 once the obligations to exercise them ceased. The releases 28 -9- 1 became effective at the same time that the right to assert best 2 efforts ended. Whether the RSA Noteholders could have asserted 3 some sort of a breach prior to the Effective Date, and prior to 4 the effectiveness of the broad releases, is pure speculation. 5 It did not happen. The after-the-fact assertions of the 6 administrative expense claims were barred as a matter of law by 7 the operation of the releases in Article 10.9(b) and OCP ¶ 56 as 8 of the Effective Date. 9 E. Other Issues 10 Because the court is disallowing the RSA Noteholders’ 11 administrative expense claims for the reasons stated above, it 12 need not address the alternative theories of waiver or 13 forfeiture asserted by the Reorganized Debtors. 14 RSA Noteholders ask for alternative relief from the OCP. 15 Reorganized Debtors are correct that modification of the Plan 16 could only be attempted in accordance with 11 U.S.C. § 1127(b). 17 And the RSA Noteholders are correct that Fed. R. Bankr. P. 9024, 18 incorporating Fed. R. Civ. P. 60(b), has been a basis for relief 19 from orders confirming plans. On this record, however, nothing 20 justifies granting the extraordinary alternative relief they 21 seek. 22 The record does show that at a lightning fast pace in June, 23 2020, this complicated case proceeded quickly to meet state- 24 imposed deadlines and presented myriad obstacles for all 25 principal players and the court. Given that history, the court 26 believes that Elliott and the other concerned RSA Noteholders 27 could have dealt with procedural difficulties such as the 28 -10- 1 original confirmation objection deadline or the fact that the 2 confirmation record had been closed by the time of the June 9, 3 2020, Backstop Motion. They could have sought some form of 4 expedited relief before entry of the OCP were they so included. 5 All major players are and were represented by some of the 6 most experienced and qualified bankruptcy counsel in the 7 country, and they know how to act quickly and effectively when 8 they need to. While the court will not engage in a theoretical 9 debate about whether one side waited in the weeds or the other 10 side tried to hide the ball, it will decline to excise its 11 discretion by reconsidering the OCP under Fed. R. Bankr. P. 9024 12 or otherwise. 13 VI. CONCLUSION. 14 The court is concurrently issuing orders disallowing the 15 administrative expense claims of Elliott, the Additional RSA 16 Noteholders and PIMCO for the reasons stated in this memorandum 17 decision. 18 *** END OF MEMORANDUM DECISION***

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